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Russian Parliament Moves Closer to Adopting Law on Compensation for Sanctions Russia Seeks Sanctions Tit for Tat
(about 5 hours later)
MOSCOW — The Russian Parliament on Wednesday took the first major step to authorize the Kremlin to seize foreign assets and use them to compensate individuals and businesses in Russia that are being hurt by Western sanctions over the Ukraine crisis. MOSCOW — The Russian Parliament on Wednesday took the first major step to authorize the Kremlin to seize foreign assets and use them to compensate individuals and businesses being hurt by Western sanctions over the Ukraine crisis.
The law stands to arm the government of President Vladimir V. Putin with a remarkable weapon of retribution, effectively allowing the government to compensate the very insider businessmen and other elite figures who Western leaders hoped would convince the Russian leader to reverse his course in Ukraine. Legislation that passed its first round stands to arm the government of President Vladimir V. Putin with a remarkable weapon of retribution, effectively allowing the government to compensate the same insider businessmen and other elite who Western leaders had hoped would persuade the Russian leader to reverse course in Ukraine.
The sanctions imposed by the United States, the European Union and others in varying phases since March had been intended to bring Russia to heel. While the full parameters of the legislation are unclear, Western corporations hold billions of dollars worth of assets in the energy-rich country. Although its full parameters were still unclear and it faces several hurdles, the legislation has the potential to ensnare large multinational corporations that have invested heavily in Russia. Global companies like McDonald’s, Pepsi and ExxonMobil hold tens of billions of dollars of assets in the energy-rich country.
Under the law, courts could seize foreign-owned property in Russia to top off the budget after these outlays, according to the draft, which was approved on the first of three readings. For a bill to become law in Russia, it must pass the lower chamber of Parliament three times and the upper chamber, the Federation Council, once. Then it must be signed by the president. The sanctions imposed by the United States, the European Union and others in varying phases since March had been intended to bring Russia to heel. But Mr. Putin pushed back. In August, Russia announced that it would ban many imports of food and agricultural products from Europe and the United States.
Early discussions of the rule precipitated a stock sell-off late last month. Russian news media have taken to calling the latest proposal the Rotenberg Law, after Arkady Rotenberg, a former judo-sparring partner of Mr. Putin, turned wealthy industrialist. Last month, the Italian authorities seized a reported $40 million in real estate, connected in part to Mr. Rotenberg, who has been sanctioned.
The news media in Russia have taken to calling the rule the “Rotenberg Law,” after Arkady Rotenberg, a former judo-sparring partner of President Putin who has become a wealthy industrialist. He reportedly lost access to about $40 million worth of real estate in Italy in September. Mr. Rotenberg has natural gas pipe and construction businesses. After that, United Russia, a political party loyal to Mr. Putin, reintroduced the bill. It had first been rejected by the government last spring.
The law passed over the objections even of acting members of government, a rarity in Russia’s usually monolithic political system. The minister of economy, Aleksei Ulyukayev, said just last week, “There is no better way to create capital outflow than passing or even discussing such legislation.” The legislation must be approved two more times by the lower chamber of Parliament, or Duma, and the Russian senate, then signed by the president to become law. The initial passage could well be saber-rattling but is still an alarming sign that Russia will not take the sanctions lightly. Even early discussions of the rule in Parliament precipitated a stock sell-off late last month, given the stakes for international corporations.
It passed with 233 votes for and 202 against, unusual in the Russian Parliament, where near-unanimous votes are more common. Mr. Putin’s United Russia party voted in favor; others including the Communist Party, loath to be seen aiding the wealthy, voted against. In the past, the Russian government has made no bones about taking apart private assets, dismantling the once-largest domestic oil company, Yukos, and jailing its former owner, Mikhail B. Khodorkovsky, for a decade. Last month, a court ordered another Russian billionaire, Vladimir P. Yevtushenkov, placed under house arrest.
The law allows Russian citizens to who suffer from an “unlawful court act” of a foreign government to appeal for compensation in Russia, ultimately by seizing foreign assets here, even those covered by immunity, like diplomatic real estate. American companies with large investments in Russia have been apprehensive about possible retribution or losing business to Asian competitors, Alexis Rodzianko, the director of the American Chamber of Commerce in Russia, said in an interview. Russia, he said, now has a “hierarchy of procurement” putting Asian businesses first.
The sanctions were intended to dissuade Mr. Putin from invading Ukraine. The United States Treasury Department has called some of the targets the “inner circle” of Mr. Putin, or longtime acquaintances, who would presumably have his ear. The only seeming swipe has been at the American corporate icon McDonald’s. Russian authorities closed several of its restaurants in Moscow in August, citing health concerns. But the timing prompted worries that it was payback for the sanctions.
Among the designated businessmen are Gennady Timchenko, an oil-to-banking billionaire, and Vladimir Yakunin, the head of the national railway, who both have said they have no intention of pressuring Mr. Putin to pull back militarily from Ukraine. So far, those actions appear largely symbolic, with most McDonald’s restaurants remaining open. Still, the symbolism was ominous. The opening of the first McDonald’s restaurant in 1990 on Pushkin Square marked the dawning of a new era of post-Soviet business opportunities for Western corporations.
Critics of the compensation law say this group instead lobbied for a payout from the budget, which was not the intention of the sanctions. Others followed. Ford operates an assembly plant for Focus compact cars outside St. Petersburg. A Russian forge stamps nearly half the titanium pieces as measured by weight used in the airframe of the new Boeing 787 Dreamliner airliner. Alcoa operates an aluminum smelter.
“I have never heard of anything more cynical,” Boris Nemtsov, a former deputy prime minister in the opposition, said on Wednesday in a telephone interview. PepsiCo first came to the former Soviet Union after offering a taste sample to the general secretary at the time, Nikita S. Khrushchev, in 1959. The company has invested heavily in Russia during the oil boom and now owns one of the country’s largest dairies.
“In fact, Russia will be robbed twice,” he said. “First Putin allowed them to steal this property and buy villas. Then when it turned out the property was frozen abroad, Putin allows them to receive compensation from the budget. I have never heard of a more cynical law.” Even without such rules, multinational companies are facing headwinds, as the country’s economy flirts with recession. Ford has said weakening Russian demand for cars, amid all the uncertainty here, is hurting its global earnings.
The 2015 budget, Mr. Nemtsov said, reduces outlays for health care and education as Russia’s economy skids into a probable recession in the fourth quarter of this year. Yet other multinationals have inadvertently benefited from Russia’s attempts to punish Western business. The ban on European dairy imports, for example, became an unexpected boon for Pepsi’s local milk and yogurt business.
The price of the Brent oil, which is a barometer for the outlook of Russia’s economy, is dropping and was at $92 a barrel on Wednesday, above the about $90 price that economists say Russia needs to balance its current account. The ruble fell to a low of 40 rubles to a dollar, and Russia’s stock market index, the Micex, dropped 2.19 percent by the closing. The legislation, though, is amplifying corporate concerns. Russia’s minister of economy, Aleksei Ulyukayev, said just last week that “there is no better way to create capital outflow than passing or even discussing such legislation.”
Mr. Rotenberg, in an interview on Rossiya state television, denied he lobbied for the law and said he would not seek compensation for his Italian real estate, snared now by sanctions. The law’s intention is to shield Russian businesses, he said, and dismissed the Italian seizure as the mere “loss of a house.” Still, the law passed with 233 votes in favor and 202 against. It would allow Russian citizens to who suffer from an “unlawful court act” of a foreign government to appeal for compensation in Russia, ultimately by seizing foreign assets here, even those covered by immunity such as diplomatic real estate.
The Western sanctions were intended to dissuade Mr. Putin from invading Ukraine. The United States Treasury Department has called some of the targets the “inner circle” of Mr. Putin, or longtime acquaintances who would presumably have his ear.
But the sanctions appear to have had an unintended consequence. Critics of the compensation law say this group of insiders instead used its position to lobby for a payout from the budget.
“I have never heard of anything more cynical,” Boris Y. Nemtsov, a former deputy prime minister and longtime critic of the Putin government, said of the law in a telephone interview. “I call it the Rotenberg villa law,” he added, in reference to the seized Italian real estate.
Mr. Rotenberg, in an interview on Rossiya state television, denied he had lobbied for the law and said he would not seek compensation for his Italian real estate, now snared by sanctions. The law’s intention is to shield Russian businesses, he said, dismissing the Italian seizure as the mere “loss of a house.”